GBPAUD forecast – NZD impact and US Carry trades explained

AUDGBP Braces for an Important Week of Data

GBPAUD rates have changed by only a small degree today following the UK GDP figures which were expected to be better than they were.  Overall rates have continued to move in a slightly negative direction for AUD buyers.  Overnight we also had news from New Zealand which did have an impact on the value of the AUD.  The Reserve Bank of New Zealand expectedly raised interest rates by 0.25% to 3.5%.  Importantly however and probably what was more of an impact on the market was the views and commentary given thereafter.  The Governor Mr Wheeler said that the currency value was unjustified, unsustainable and had the potential to fall significantly.  This has pointed towards the direction of currency intervention by the central bank which has resulted in the NZD getting weaker.

Next week data which traditionally drives the markets are fairly light. This is due to it being the last week of the month however information from the US is expected at the end of the week.  Regular readers will know that this could provide an opportunity as the AUD is heavily impacted by what happens in the US.  This is down to the CARRY TRADE, a carry trade is what financial institutions use to try and make money internationally. So they borrow money in a low interest currency and invest it in a higher interest base country.  They are however open to currency movement so are very touchy with risk. When risk is high, demand for carry trades increase whereas if risk is low the demand for carry trades also falls and this change in demand can happily have an impact on the demand for the currency and therefore its value.  So depending what the world’s largest economy does has a significant impact on the carry trade, the demand and therefore the cost of the AUD.

Scary to think all the factors that can impact the market and how expensive anything from a holiday to a holiday home can be in the matter of minutes….

If you would like more information on how this could impact you, the options available or a live price from one of the country’s leading currency broker please feel free to get in contact.

Contact the author – STEVE EAKINS – via his direct email [email protected]